MILLERSPOOLMAN LIVING IN THE ENVIRONMENT 17 TH Chapter

MILLER/SPOOLMAN LIVING IN THE ENVIRONMENT 17 TH Chapter 23 Economics, Environment, and Sustainability

Case Study: Making Microloans to the Poor (1) § Micro-lending or microfinance § 1983: Muhammad Yunus • • Grameen (Village) Bank in Bangladesh Provides microloans; mostly to women “Solidarity” groups How does it work? § Half of borrowers eventually live above the poverty line

Case Study: Making Microloans to the Poor (2) § 2006: Muhammad Yunus • Nobel Peace Prize § 2006: Citibank and TIAA-Cref • Microloans

Muhammed Yunus with Nobel Prize Fig. 23 -1, p. 613

23 -1 How Are Economic Systems Related to the Biosphere? § Concept 23 -1 Ecological economists and most sustainability experts regard human economic systems as subsystems of the biosphere

Economic Systems Are Supported by Three Types of Resources § Economic systems are supported by • Natural capital • Human capital, human resources • Manufactured capital, manufactured resources

Three Types of Resources Are Used to Produce Goods and Services Fig. 23 -2, p. 615

+ Natural Capital + Manufactured Capital = Human Capital Goods and Services Fig. 23 -2, p. 615

Market Economic Systems Depend on Interactions between Buyers and Sellers (1) § Supply, demand, market price equilibrium point § True free market system • No company or group controls prices of a good or service • Market prices include all direct and indirect costs (full-cost pricing) • Consumers have full information about beneficial and harmful environmental effects of goods and services

Market Economic Systems Depend on Interactions between Buyers and Sellers (2) § Real world • • Tax breaks Subsidies Trade barriers Withholding of negative information

Supply, Demand, and Market Equilibrium for a Good in a Market Economic System Fig. 23 -3, p. 615

High Supply Price Demand Market equilibrium Low Quantity High Fig. 23 -3, p. 615

Economic Growth and Economic Development § Economic growth • Increased capacity to supply goods and services • Requires increased production and consumption • Requires more consumers § Economic development • Improvement of living standards § Environmentally sustainable economic development

Gross World Product, 1970 -2008 Figure 1, Supplement 9

Gross World Product per Person, 1970 -2008 Figure 2, Supplement 9

Governments Intervene to Help Correct Market Failures § Private goods § Public services • • • Environmental protection National security Police and fire protection Safe food and water Provided by government because private companies can’t or won’t

Economists Disagree over Natural Capital, Sustainable Economic Growth (1) § High-throughput economies • Resources flow through and end up in planetary sinks where pollutant can be at harmful levels § Models of ecological economists • Economic systems as subsystems of biosphere • Conventional economic growth unsustainable • Wealth from depletion of natural capital

Economists Disagree over Natural Capital, Sustainable Economic Growth (2) § Ecological models’ three assumptions 1. Resources are limited and shouldn’t be wasted 2. Encourage environmentally beneficial and sustainable forms of economic development 3. Full-cost pricing needed to take into account harmful environmental and health effects of some goods and services § Environmental economists take middle ground between classical and ecological economists

High-Throughput Economies Rely on Ever. Increasing Energy, Matter Flow Fig. 23 -4, p. 617

Inputs (from environment) System throughputs Outputs (into environment) Low-quality energy (heat) High-quality energy High-waste economy High-quality matter Waste and pollution Fig. 23 -4, p. 617

Ecological Economists: Economies Are Human Subsystems of the Biosphere Fig. 23 -5, p. 617

Solar Capital Goods and services Economic Systems Heat Natural Capital Natural resources such as air, land, soil, biodiversity, minerals, and energy, and natural services such as air and water purification, nutrient cycling, and climate control Production Depletion of nonrenewable resources Consumption Degradation of renewable resources (used faster than replenished) Pollution and waste (overloading nature’s waste disposal and recycling systems) Fig. 23 -5, p. 617

What Is the Purpose of a Business? § Make a profit for its owners and investors § Sustainability is about staying in business § Another definition – “Making a quality product and earn a profit without harming the environment. ”

23 -2 How Can We Put Values on Natural Capital and Control Pollution and Resource Use? § Concept 23 -2 A Economists have developed several ways to estimate the present and future values of a resource or ecological service, and optimum levels of pollution control and resource use. § Concept 23 -2 B Comparing the likely costs and benefits of an environmental action is useful, but it involves many uncertainties.

Protecting Natural Capital § Estimating the values of the earth’s natural capital § Estimate nonuse values • Existence value • Aesthetic value • Bequest value, option value

Estimating the Future Value of a Resource Is Controversial § Discount rates • Estimate of a resource’s future economic value compared to its present value § Proponents of a high discount rate § Critics of a high discount

We Can Estimate Optimum Levels of Pollution Control and Resource Use § Marginal cost of resource production § Optimum level of resource use § Optimum level for pollution cleanup

Optimum Resource Use Fig. 23 -6, p. 620

High Marginal cost of resource production Cost Marginal benefit of resource use Optimum level of resource use Low 0 25 50 Coal removed (%) 75 100 Fig. 23 -6, p. 620

Cost-Benefit Analysis Is a Useful but Crude Tool § Cost-benefit analysis follows guidelines • • State all assumptions used Include estimates of the ecological services Estimate short-and long-term benefits and costs Compare the costs and benefits of alternative courses of action § Always uncertainties

23 -3 How Can We Use Economic Tools to Deal with Environmental Problems? § Concept 23 -3 We can use resources more sustainably by including their harmful environmental and health costs in the market prices of goods and services (full-cost pricing); by subsidizing environmentally beneficial goods and services; and by taxing pollution and waste instead of wages and profits.

Most Things Cost a Lot More Than We Might Think § Market price, direct price § Indirect, external, or hidden costs § Direct and indirect costs of a car § Should indirect costs be part of the price of goods? • Economists differ in their opinions

Environmental Economic Indicators Could Help Us Reduce Our Environmental Impact § Measurement and comparison of the economic output of nations • Gross domestic product (GDP) • Per capita GDP § Newer methods of comparison • Genuine progress indicator (GPI) • Gross National Happiness (GNH)

Monitoring Environmental Progress: Comparing U. S. Per Capita GDP and GPI Fig. 23 -7, p. 622

35, 000 30, 000 1996 Dollars person 25, 000 20, 000 Per capita gross domestic product (GDP) 15, 000 10, 000 5, 000 Per capita genuine progress indicator (GPI) 0 1950 1960 1970 1980 Year 1990 2000 Fig. 23 -7, p. 622

We Can Include Harmful Environmental Costs in the Prices of Goods, Services § Environmentally honest market system § Why isn’t full-cost pricing more widely used? 1. Many businesses would have to raise prices and would go out of business 2. Difficult to estimate environmental and health costs 3. Businesses have strong influence on government – preferential regulations, tax breaks, subsidies

Label Environmentally Beneficial Goods and Services § Product eco-labeling § Certification programs § Greenwashing

Reward Environmentally Sustainable Businesses § Phase out environmentally harmful subsidies and tax breaks § Phase in environmentally beneficial subsidies and tax breaks for pollution prevention § Political difficulties

Tax Pollution and Wastes Instead of Wages and Profits § Green taxes, ecotaxes • So that harmful products and services are at true cost § Steps for successful implementation of green taxes § Success stories in Europe

Trade-Offs: Environmental Taxes and Fees Fig. 23 -8, p. 624

Trade-Offs Environmental Taxes and Fees Advantages Disadvantages Help bring about fullcost pricing Low-income groups are penalized unless safety nets are provided Encourage businesses to develop environmentally beneficial technologies and goods to save money Easily administered by existing tax agencies Hard to determine optimal level for taxes and fees Governments may use money as general revenue instead of improving environmental quality and reducing taxes on income, payroll, and profits Fig. 23 -8, p. 624

Environmental Laws and Regulations Can Discourage or Encourage Innovation § Environmental regulation § Command control approach § Incentive-based environmental regulations § Innovation-friendly regulations

We Can Use the Marketplace to Reduce Pollution and Resource Waste § Incentive-based regulation example • Tradable pollution or resource-use permits § Cap-and-trade approach used to reduce SO 2 § Advantages § Disadvantages

Trade-Offs: Tradable Environmental Permits Fig. 23 -9, p. 625

Trade-Offs Tradable Environmental Permits Advantages Disadvantages Flexible Big polluters and resource wasters can buy their way out Easy to administer Encourage pollution prevention and waste reduction Permit prices determined by market transactions May not reduce pollution at dirtiest plants Caps can be too high and not regularly reduced to promote progress Self-monitoring of emissions can allow cheating Fig. 23 -9, p. 625

Reduce Pollution and Resource Waste by Selling Services Instead of Things § 1980 s: Braungart and Stahl • New economic model § Service-flow economy, eco-lease (rent) services • Xerox • Carrier • Ray Anderson: lease carpets in the future

Individuals Matter: Ray Anderson § CEO of Interface, largest commercial manufacturer of carpet tiles § Goals • • • Zero waste Greatly reduce energy use Reduce fossil fuel use Rely on solar energy Copying nature § How’s it working?

Ray Anderson Fig. 23 -A, p. 626

23 -4 How Can Reducing Poverty Help Us to Deal with Environmental Problems? § Concept 23 -4 Reducing poverty can help us to reduce population growth, resource use, and environmental degradation.

The Gap between the Rich and the Poor Is Getting Wider § Poverty • 1. 4 billion people live on less than $1. 25 per day § Trickle-down effect § Flooding up § Wealth gap

Poor Family Members Struggling to Live in Mumbai, India Fig. 23 -10, p. 627

We Can Reduce Poverty (1) § South Korea and Singapore reduced poverty by • • Education Hard work Discipline Attracted investment capital

We Can Reduce Poverty (2) § Important measures • • • Combat malnutrition and infectious diseases Universal primary school education Stabilize population growth Reduce total and per-capita ecological footprints Large investments in small-scale infrastructure

Revisiting Microlending § Microloans give hope to the poor § Microloans help more than direct aid § Spreading around the world § Kiva. org

Solar Panel Purchased with Microloan in India Fig. 23 -11, p. 629

Achieve the World’s Millennium Development Goals § 2000: Millennium Development Goals • • • Sharply reduce hunger and poverty Improve health care Empower women Environmental sustainability by 2015 Developed countries: spend 0. 7% of national budget toward these goals § How is it working?

What Should Our Priorities Be? Fig. 23 -12, p. 629

Expenditures per year needed to Reforest the earth $6 billion Protect tropical forests $8 billion Restore rangelands $9 billion Stabilize water tables Deal with global HIV/AIDS Restore fisheries Provide universal primary education and eliminate illiteracy Protect topsoil on cropland Protect biodiversity Provide basic health care for all Provide clean drinking water and sewage treatment for all Eliminate hunger and malnutrition Expenditures per year (2008) World military $1. 4 trillion U. S. military $734 billion $39 billion U. S. dog food U. S. highways $10 billion $29 billion $27 billion U. S. foreign aid $10 billion. U. S. potato chips and similar snacks $13 billion U. S. cosmetics U. S. EPA $14 billion $22 billion $8 billion $7. 2 billion $24 billion $31 billion $33 billion $37 billion $48 billion Total Earth Restoration and Social Budget $245 billion Fig. 23 -12, p. 629

23 -5 Making the Transition to More Environmentally Sustainable Economics § Concept 23 -5 We can use three principles of sustainability as well as various economic and environmental strategies to develop more environmentally sustainable economies.

We Are Living Unsustainably § Depleting natural capital § Environmental alarm bells going off § Matter recycling and reuse economies • Mimic nature

Use Lessons from Nature to Shift to More Sustainable Economies § Donella Meadows: contrasts the views of neoclassical economists and ecological economists § Best long-term solution is a shift to • Low-throughput low-waste, economy

Solutions: Lessons from Nature: A Low Throughput Economy Fig. 23 -13, p. 631

Inputs (from environment) High-quality energy High-quality matter System throughputs Outputs (into environment) Low-quality energy (heat) Energy conservation Waste and pollution prevention Low-waste economy Pollution control Waste and pollution Recycle and reuse Fig. 23 -13, p. 631

Make Money and Create Jobs by Shifting to an Eco-Economy § Hawken, Brown, and other environmental business leaders • Transition to environmentally sustainable economies • Some companies will disappear • New jobs will be created • Economic succession • Green jobs

Solutions: Principles for Shifting to a More Environmentally Sustainable Economy Fig. 23 -14, p. 631

Economics Reward (subsidize) environmentally sustainable economic development Penalize (tax and do not subsidize) environmentally harmful economic growth Shift taxes from wages and profits to pollution and waste Use full-cost pricing Sell more services instead of more things Do not deplete or degrade natural capital Live off income from natural capital Reduce poverty Use environmental indicators to measure progress Environmentally Sustainable Economy (Eco-Economy) Certify sustainable practices and products Use eco-labels on products Resource Use and Pollution Cut resource use and waste by reducing, reusing, and recycling Improve energy efficiency Rely more on renewable solar, wind and geothermal energy Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy Ecology and Population Mimic nature Preserve biodiversity Repair ecological damage Stabilize human population Fig. 23 -14, p. 631

Economics Reward (subsidize) environmentally sustainable economic development Penalize (tax and do not subsidize) environmentally harmful economic growth Shift taxes from wages and profits to pollution and waste Use full-cost pricing Sell more services instead of more things Do not deplete or degrade natural capital Live off income from natural capital Reduce poverty Environmentally Sustainable Economy (Eco-Economy) Use environmental indicators to measure progress Certify sustainable practices and products Use eco-labels on products Resource Use and Pollution Cut resource use and waste by reducing, reusing, and recycling Improve energy efficiency Rely more on renewable solar and geothermal energy Shift from a nonrenewable carbon-based (fossil fuel) economy to a non-carbon renewable energy economy Ecology and Population Mimic nature Preserve biodiversity Repair ecological damage Stabilize human population Stepped Art Fig. 23 -14, p. 630

Solutions: Environmentally Sustainable Development Fig. 23 -15, p. 632

No-till cultivation Forest conservation Production of energy-efficient electric cars recharged by wind and solar energy Sustainable fishing and aquaculture Sustainable organic agriculture and dripirrigation High-speed trains Solar-cell fields Ecovillage Wind farms Bicycling Water conservation Communities of passive solar homes (ecovillage) Recycling, reuse, and composting Recycling facility Fig. 23 -15, p. 632

Green Careers Fig. 23 -16, p. 633

Aquaculture Environmental law Biodiversity protection Environmental nanotechnology Biofuels Fuel cell technology Climate change research Geographic information systems (GIS) Hydrogen energy Conservation biology Ecotourism management Energy-efficient product design Environmentally Sustainable Environmental Businesses chemistry and Careers Environmental design and architecture Environmental economics Environmental education Environmental engineering Environmental entrepreneur Environmental health Geothermal geologist Hydrologist Marine science Pollution prevention Recycling and reuse Selling services in place of products Solar cell technology Sustainable agriculture Sustainable forestry Urban gardening Urban planning Waste reduction Watershed hydrologist Water conservation Wind energy Fig. 23 -16, p. 633

Green Career: Installing Solar Cells Fig. 23 -17, p. 633

Three Big Ideas 1. Making a transition to more sustainable economies will require finding ways to estimate and include the harmful environmental and health costs of producing goods and services in their market prices. 2. Making this economic transition will also mean phasing out environmentally harmful subsidies and tax breaks, and replacing them with environmentally beneficial subsidies and tax breaks.

Three Big Ideas 3. Other tools to use in this transition are to tax pollution and wastes instead of wages and profits, and to use most of the revenues from these taxes to promote environmental sustainability and to reduce poverty.